Businesses, city leaders say in Oakland, economy is rebounding

Sarah Kirnon, owner of Miss Ollie's in Old Oakland, says location and business investment enabled her to open in early December.

Sarah Kirnon, owner of Miss Ollie's in Old Oakland, says location and business investment enabled her to open in early December.

Sarah Kirnon and her business associate were putting the finishing touches on their new restaurant in Old Oakland—Miss Ollie’s, specializing in Afro-Caribbean fare—days before it was scheduled to open. In the kitchen, spices were still in their packaging: cardamom, cumin, dried and smoked habanero peppers.  Tables were stacked in front. The grill shone brand new.

But Kirnon, 43, who has worked as a chef since she was 19, said she wasn’t nervous about the opening. This location, on Washington Street and 9th, was perfect, with its floor-to-ceiling windows. Kirnon would be cooking food she loves, that she grew up eating in the Caribbean. “I grew up in a house with lots of aunts and uncles, and eating was one of the things that brought us together,” Kirnon said. “That’s what we wanted to do here—not just be a restaurant, but a community where people come together.”

And—crucial to her business plans—Kirnon obtained financial backing for Miss Ollie’s from a few investors. Oakland officials, in particular Mayor Jean Quan, say this is not accidental.

“Oakland is in the best financial shape we’ve seen in a decade,” Quan told reporters last month, in a special hour-long event to present encouraging news about the city’s economy. “I’m happy to report that unemployment is down, and jobs and city revenue are both up.”

Public and private revenues here are on the upswing, Quan said. Donna Hom, the city’s interim budget director, said Oakland brought in more money in sales taxes, business taxes and property taxes for the fiscal year 2011, compared to 2010. In total, the city collected $5.6 million in sales taxes for all of 2011; $13.6 million in property tax revenues, and a surge of new business licenses that netted $7.7 million for the last budget year.

“Oakland is recovering at a similar speed as the greater Bay Area, and marginally faster than the nation,” Hom said. “A few economic indicators are the drop in unemployment, and the increase of sales taxes and business taxes.”

Unemployment figures that show Oakland’s joblessness rate is at 13.1 percent, according to the most recent data from the state’s Economic Development Department. That’s still much higher than the statewide rate of 7.9 percent, and  Alameda County’s 8.6 percent unemployment rate. But for Oakland, it’s a step up.   In January 2011, the city’s jobless rate was more than three points higher—16.6 percent.

“The city is continuing to grow,” Quan said.

The rosy numbers defy the narrative of Oakland as a city in struggle. The city is facing a soaring crime rate, with homicides reaching a five-year high, and Oakland’s police department spent years embroiled in a federal investigation that finally reached a resolution this month. Strict departmental oversight by an independent observer looms, following a federal court-ordered investigation that questioned the department’s use of force. Oakland leaders must also contend with public and political criticism for their decision to lay off off nearly 200 police officers in July 2010, shrinking the force to 627, down from 803. But Quan said in a phone interview last week that the city’s growth will give her resources to accomplish two of her major goals for the next five years: putting more police officers on the streets, and creating more economic development programs to draw businesses to the city.

“Of course we need to do better—we have a lot of challenges, but I’m not going to lay off any police officers this year,” Quan said. “We’re getting major projects off the ground, and that’s good news for the city. I’ll be able to focus on public safety and job growth.”

Quan was referring to large development projects that appear finally to be underway, such as the 170-acre Oakland Army Base development; Coliseum City, a proposal that would bring in investors to build restaurants and new retail to the city’s sports arena; and West Oakland and Lake Merritt neighborhood growth plans that are intended to bring in more housing and retail.

Some of Quan’s recent budget numbers are based on numbers that don’t really reflect sustained growth in Oakland. Some of the revenue increases come from one-time payments, such as redevelopment funds and city audits.  For example, when Gov. Jerry Brown decided in 2010 to dissolve the 400-plus redevelopment agencies throughout the state, cities had to hand their redevelopment funding over to the state.  A portion of that money is being redistributed to Oakland, though, so the city can pay for a team to wrap up the former redevelopment agency, while maintaining basic services.

One-time-only revenues also resulted from city audit projects, such as the one that tracked landlords who rent out their residential property but hadn’t previously registered as a business. The landlords this audit located were required to buy business licenses last year.

But the overall numbers, along with a study by an outside economist, show that much of the growth here is real.

Jon Haveman, chief economist for the Bay Area Council Economic Institute, a nonprofit research firm that produces studies on economic trends in the Bay Area, backed up the optimistic outlook forecast by city budget experts. “Oakland is definitely showing signs of recovery,” Haveman said. “It’s growing at about the same pace as the state as a whole—faster than the nation, but slower than the two other regions of the Bay Area, San Francisco and Silicon Valley.”

Since January 2011, when unemployment was at its highest in Oakland, more than 4,000 new businesses have opened, according to the city’s Business Tax License center. (It’s harder to track how many business closed during the same time period; the city doesn’t track that data closely.)

The new enterprises span a wide range of genres: Harry’s Oakland Auto Service, an East Oakland repair shop that opened in January 2011; the Park Boulevard Yoga Center, in the hills; the Corner Grocery, on International Boulevard; and Homeroom, a popular mac-and-cheese restaurant in Temescal. There’s Flores Drywall, Pape Chiropractic, Bat Girl Designs, Casa Jimenez Super Burrito Truck, and Top Dog Pet Sitting and Dog Walking.

New businesses help stabilize the city’s economy by bringing in taxes, in the form of both business licenses and ongoing sales taxes. In Oakland, all new business owners—from the mom-and-pop business, to the family renting out its spare bedroom, to large corporations—are required to pay for what’s called a business tax license, or a permit to operate. The owner buys a license in the first year, and then renews it every year by paying a tax on the amount of income he or she brings in.

Oakland netted more than $4 million in sales taxes in 2011, a 17 percent increase from 2010. That’s a greater increase than those of Emeryville and Berkeley, which grew 3 and 4 percent, respectively. Of the 14 cities in Alameda County, only Piedmont and Livermore surpassed Oakland’s growth.

The city’s economy has taken at least one small hit because of the 2012 federal interference of the pot industry in Oakland, including Oaksterdam University, city budget planners said.  But they declined to say what effect that’s had on the economy.

“The dispensary industry was rolling, but it’s questionable how much a burgeoning industry affected our overall numbers,” said Bradley Johnson, an analyst in the city’s budget and revenue division. “Would it be a problem if it went away?” he asked. “Sure, but would it be catastrophic to business or sales taxes? No.”

Quan and City Administrator Deanna Santana assert that despite the city’s reputation for lofty, failed financial recovery ideas, this time they have a strong five-year plan, based on projections that reflect what the economy has done in the past, instead of projections about the future. And the city has an $83 million general fund reserve, of which $30 million is available for things like police services and roads repairs.

The city’s five-year financial plan, detailed in an 88-page document, lays out a financial strategy funding two police academies a year through 2018, at the cost of $6.5 million per academy, Quan said. It is also intended to plan for delayed infrastructure upkeep projects on roads, as well as obligatory costs for public employee retiree and healthcare benefits.

“There were times that the city had no reserve, so the fact that we have the mandated reserve money is huge,” Quan said. “What we’re projecting is, if our economy continues to grow, we’ll be able to bring our police force up in a few years.”

A report by the Oakland-based private real estate investment firm Marcus and Millichap found that a large chunk of the city’s sales tax revenue comes from big retailers, such as Target, which is on the Oakland-Emeryville border. Oakland receives one-third of the sales taxes generated there, while Emeryville gets the rest. Other leading Oakland stores also belong to popular chains, including Safeway, Trader Joe’s, Peet’s Coffee and Tea, Bevmo! and Walgreens.

The investment firm’s report underscores Quan’s confidence. It also found that Oakland could do better in capturing sales taxes. Their figures show that in 2010, Oakland lost taxes on $232.5 million in grocery store sales, and $1 billion on sales of things like clothing and shoes, because shoppers took their business to competing cities like Emeryville and San Francisco.

But Haveman, the economist who studies Oakland, attributed the city’s growth to a surge of new business and development in the Bay Area as a whole, as well as relatively low rental rates here and the availability of retail space.

“A big part of the recent growth in the East Bay is coming from the fact that commercial rental markets in Silicon Valley and San Francisco are seeing very large rent increases, so the East Bay is looking much better from a cost perspective,” Haveman said. “It’s also true that economic activity in one part of the Bay Area will lead to growth in other parts of the Bay Area, largely because people may work in San Francisco, but they’re living in the East Bay. So people will take their money they earn, for example, in San Francisco, and spend it in Oakland, where they live.”

Aliza Gallo, an economic development manager with the city of Oakland, said that in the past two years, the city has reorganized its Office of Economic and Workforce Development to target new business growth in depressed commercial areas that have already started to see a boom, like Temescal. “We’re marketing Oakland as a friendly place to do business, and we’re already seeing some of that growth,” Gallo said.

Gallo said healthcare, and the restaurant industry here, are two good examples of businesses that are growing. “Healthcare is a major industry that’s emerging,” she said. “We’re working with healthcare providers to look forward at trends, and look for business development opportunities. We’re asking things like, what does the Affordable Care Act mean for Oakland, and what kind of opportunities are there for us to be a part of that industry?”

Back at Miss Ollie’s in Old Oakland, business is booming. Crowds regularly fill her 50-seat space during lunchtime, and Kirnon is looking forward to opening for dinner soon.

“I’ve had this kind of place in mind since I was a child,” Kirnon said on a recent day, sitting in her new space as a construction crew pounded nails and drilled screws next to her. “This place is named after my grandma, so I feel like she’s watching over me.”

Correction: This article originally stated that Oakland took in $40,000 in sales taxes during 2011. In fact, the city’s sales tax income was $40 million that year.

5 Comments

  1. RCP

    Let’s be real, if more of the “cash only” business in Oakland would pay sales taxes as they should our city would be doing much better financially. I’m hoping that “oakland netted more than $40,000 in sales taxes” is a typo. Surely there was more than $456,000 worth of sales done in all of Oakland on the books.

  2. Angela Hart Post author

    Thank you for the comment RCP. We rechecked our data, and in fact, Oakland took in $40 million during 2011, not $40,000. Thanks for the catch!

  3. Always read the entire written document that is released at the same time as City officials put on their dog and pony show about great we’re doing.

    That document states “Over the past few years, City employees, elected officials, and residents came together to create short term solutions to extraordinary fiscal challenges. However, despite the fact that the Cityfs
    revenues are improving, expenditures.including those for deferred capital projects and long]term liabilities.are expected to exceed revenues over the next five years.”

    Yes it’s nice that we show a temporarily balanced budget because largely because of the last of our Redevelopment shell games and as you point out an increase in sales tax revenues from big box stores, plus some new business licences that might be ongoing.

    But we’re seriously screwed just a year or two out based on the City’s own projections. There was no attempt to propose a solution in the document. That’s promised for Spring 2013.

    Also you need to put Oakland’s growth in perspective with its massive fiscal needs. We won’t avoid bankruptcy by merely growing a bit faster than the rest of CA because we have massive retirement and deferred indfrastructure costs PLUS we have a very high number of very poor residents who need much mere expensive services than well to do residents and need jobs that pay decent benefits. Not more restaurant jobs.

    We need to get up to the economic growth of SF and the Valley that has consistently escaped us over the last several boom and bust cycles.

    That will never happen as long as we have politicians who believe like ours do that economic development mostly = government sponsored projects like the Army Base or the Coliseum. That is not how Silicon Valley, Walnut Creek, San Leandro, or SF have over taken Oakland. We should have been economic leader in the Bay Area based on many factors. But consistently have lagged.

    Len Raphael, CPA
    Temescal

  4. The reason the City’s spin office always gives Pandora as an example of how we’re attracting tech companies is that there are precious few examples of tech companies choosing Oakland during the current tech boom. Pandora opened here 10 years ago. SF has attracted dozens if not hundreds of existing and startups in the last couple of years when we get mostly restaurants and food trucks.

    (check your stats for Piedmont sales tax growth because there are extremely few retail businesses located there. Also you might be the only person who believes that the OPD Federal oversight situation has been “resolved”)

    Scary to think what our Mayor intends to do when she finds the time to

  5. Angela Hart Post author

    Comment well taken Len, thanks.

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